Genius Factor

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By Irving Wladawsky-Berger:

"In a recent paper, Digital Abundance and Scarce Genius, Seth Benzell and Erik Brynjolfsson introduce a new argument: slow economic growth and stagnating wages are inexorably linked to the rise of our global superstar economy. A striking feature of digital technologies is their replicability at low or even zero cost, enabling digital innovations to spread almost instantly around the world. As a result, digital labor and capital are becoming more abundant because they can be reproduced much more cheaply than their traditional, physical forms. Why then is productivity growth so lukewarm? What is constraining growth?

To address this paradox, Benzell and Brynjolfsson propose a novel production model. In addition to capital and labor, their model adds a third factor, a bottleneck which prevents economies from taking advantage of the abundance of digital capital and labor. They dub this third factor genius (G).

The G factor is primarily associated with exceptional talent which,unlike labor and capital, isn’t subject to digitization. Its relative scarcity thus becomes a production bottleneck. “Many have the sense that intangible assets and superstar workers are more abundant than ever. Perhaps the most surprising thing then about our result is that these factors are increasingly scarce.”

The model helps explain “why ordinary labor and ordinary capital haven’t captured the gains from digitization, while a few superstars have earned immense fortunes. Their contributions, whether due to genius or luck, are both indispensable and impossible to digitize. This puts them in a position to capture the gains from digitization.” (


By Irving Wladawsky-Berger:

"The paper discusses three different manifestations of this scarce and growth-limiting genius factor: superstar individuals, organizational talent, and ‘virtual real estate’.

Superstar individuals. Over the past few decades, labor markets in the US and other advanced economies have experienced increased demand for highly skilled workers. While the demand for routine skills that can be replaced by technology has been declining, the demand for skills that are complemented and enhanced by technology keeps rising. The paper defines genius labor as comprising the top 3 percent of all workers. Their model predicts that in 2012, this 3 percent commanded 25 percent of labor income from US non-financial corporations, a figure that was validated by empirical data. The income of the top 3 percent is likely higher now, given our continuing technology advances. This is evident in the large salaries and bonuses that AI experts are able to command.

Organizational capital. In the 1990s, the Internet was supposed to usher a much more open, decentralized, democratic economy. As we well know, it hasn’t quite worked out as expected. Instead, we’ve seen the rise of the global superstar company, a second prominent G factor. Besides their ability to attract superstars individuals, such companies benefit from a number of intangible assets, including superior organizational capital mostly acquired through their considerable investments in leading-edge digital technologies and skills.

Virtual real estate. This special type of intangible asset is sort of like land in a city: it’s roughly fixed in supply, prices can skyrocket as demand rises, and its development requires considerable capital and labor. Such assets include intellectual property; control of de-facto standards--widely used operating systems or search algorithms--and the kind of brand reputation that makes their products highly desirable." (